Today 19 April 2019, Friday - Last updated at ora 09:00

News 21 May 2015, at 08:29

The Unfolding Financial Crisis Threatening Moldova

Marime Font

It is understandable that in recent months the still-unresolved crisis in Ukraine and renewed Cold War with Russia have commanded the attention of most western watchers of events in the former Soviet Union.

Perhaps that’s one reason far less notice has been paid to an unfolding financial crisis that threatens the stability of Moldova, a country of over three million people delicately sandwiched between Ukraine and Romania. The latter is a member of both NATO and the European Union, and the large majority of Moldovans are Romanian-speakers.

In a nutshell, the Moldovan crisis involves the abuse of power by politicians of several parties—including those running the country’s shaky pro-EU minority government—for the purpose of siphoning funds from a number of Moldovan banks, notably from Banca de Economii Moldova (BEM). At the end of last year, a scandal broke out following a series of statements made by several politicians that $1 billion had been embezzled from three of the country’s banks, including BEM. Fingers were pointed directly at private investors in the banks as the main culprits.

The allegations spurred a popular panic and mass withdrawals of deposits in the banks concerned. The crisis reached a peak in February when the Moldavian currency (the leu) fell almost by 40% against the euro and the dollar.

Under pressure, authorities reluctantly opened an investigation into what really happened. Even the American consulting firmKroll was engaged, to which the National Bank of Moldova, the country’s central bank, paid from $200,000 to 300,000. However, Moldovan officials were dissatisfied with the results of Kroll’s inquiry, believing that their report did not shed much light on how the money was lost and that it consisted mainly of a digest of local media reports. Viorel Chetraru, the head of the National Anticorruption Center, which has also looked into the banking scandal, called the Kroll’s report a “fiction” overall.

Most recently, after months of media hype about the missing “billion dollars,” it turns out that figure was a “myth,” according to a May 7 statement by Dorin Drăguțanu, Governor of the National Bank of Moldova. The relevant discrepancy, said Dragutanu, amounts to less than half that sum—closer to $450 million. But even at that reduced figure the extent to which BEM was despoiled is astonishing, amounting to about 8% of the country’s GDP. (As a comparison, on the scale of the GDP of the United States the equivalent figure would be about a trillion dollars).

No less staggering than the larceny itself is the shamelessness of Moldovan politicians’ maneuvers in covering their tracks and trying to blame private investors for the loss of funds. Starting in late 2013, when insiders became aware that BEM was nearing collapse, on the recommendation of a government commission (controlled by the same political interests that had looted the bank in the first place) the Moldovan government sold off part of BEM’s shares to private investors while concealing the bank’s liabilities. There was a second, bigger sell-off in August 2014 in anticipation of parliamentary elections just three months later. There were no independent audits, just the Finance Ministry’s report of the bank’s essentially sound condition. Then, in November 2014, days before the election, the government raided BEM and placed it back under state control.

Only now, after months of noisy public recriminations, is the truth is beginning to dribble out. Many high-ranking officials called before Parliament have been compelled to admit that BEM’s looting lasted for years, well before the private investors got involved. National Bank Governor Dragutanu was explicit in reporting that “Since 2007, BEM has been sustaining losses for hundreds of millions of lei. How did they accumulate? From commissions for bad loans.…[that were] were provided both till 2009, and in 2009-2013”—that is, the year when BEM’s shares began to be sold to private investors. In turn, the Prosecutor General of Moldova, Corneliu Gurin, declared at the same parliamentary hearings: “Thefts in BEM began not in 2014 and not even in 2013. They occurred long before these events, and in 2009 they increased considerably.” In other words, BEM was empty long before the scandal broke out in 2014.

The reality is that BEM’s losses are the result of consistent plundering over 20 years or more. The absurdity of officials’ accusations against investors would be amusing if not for the rot this episode exposes at the core of what many deem a leading candidate country for EU integration. Indeed, not too long ago, Moldova was considered (accurately or not) well ahead of other countries like Ukraine and Georgia precisely in the area of rule of law and regulatory (including financial) reform to meet European standards. That image is now a shambles and, in the description of one well-informed analyst in Poland, amounts to an exercise in “Euro-imitation”:

From the perspective of the parties currently in power in Moldova, European integration is interesting as an idea which makes it possible to attract the pro-European electorate. It is also considered a source of aid funds and loans. However, the real dimension of European integration, involving modernising the country by way of implementing necessary reforms, is not favourable for the coalition leaders because it poses a threat to their business dealings. This is why, despite five years of rule by a coalition composed of pro-European parties which from the beginning announced their intention to modernise Moldova in the Western style, the country has not been subject to any structural reconstruction concerning how the state institutions operate. Huge aid funds worth hundreds of millions of euros granted by the EU as part of support for reform programmes did not help much. For example, attempts at limiting the scale of ever-present, endemic corruption permeating all spheres of life in Moldova – from the judiciary through the financial sector to the schooling system and healthcare – have proved unsuccessful.

As thousands of Moldovans take to the streets demanding “Down with the thieves” and “We want the billions back,” to say that the BEM imbroglio bodes ill for Moldova’s European integration prospects is an understatement. Nor does it suggest a climate conducive to investment and economic growth, where an entrenched ruling clique exercises unlimited influence on the judicial system, law enforcement, and investigatory bodies. What normal investors will come to a country where first they are offered for sale illiquid assets officially and falsely certified to be sound, then are deprived of them, and then are blamed for their illiquidity?

blog comments powered by Disqus

Din aceeaşi secţiune

Cele mai noi ştiri de azi

News 15 April 2019, at: 10:25

The radio station brought to light Victor Josu, a pro-Russian who is helped by Valeriu Pasat, the ex director of the Service of Information and Security to promote Russia's politics in Moldova. In 2010, Victor Josu was intensively supporting a further organization of a referendum to support the...

( ) Read all

News 12 April 2019, at: 04:44

Katie Bowman .. A Harvard girl who photographed the black hole

Katie Bowman .. A Harvard girl who photographed the black hole

 Katie Bowman, a PhD in electrical engineering from the Massachusetts Institute of Technology, specialized in a very fine part of building complex and precise algorithms that could create images through a huge data stream of up to 5 million gigabytes, and then completed her specialization at...

( ) Read all

News 10 April 2019, at: 07:35

 Today's press conference of the Socialist Party of the Republic of Moldova, informally led by the Moldovan President, Igor Dodon, supports the suspicion that his undeclared and denied plan to place the country under Russian control exists and is still in motion.

( ) Read all

News 9 April 2019, at: 08:26

Time flies. 15 years have passed since Lithuania‘s accession to NATO. Once, NATO membership seemed completely out of Lithuania‘s reach. Today, we proudly consider ourselves to be experienced and reliable members of the Alliance.

( ) Read all

News 3 April 2019, at: 11:07

 Greek judge Linos Alexandros Sicilianos was elected as President of the European Court of Human Rights on Monday.

( ) Read all

News 3 April 2019, at: 10:56

 Romanian Finance Ministry to launch three Eurobond issuances, as first ever 30-year Eurobonds are included. Former PM Victor Ponta strongly criticized the measure.

( ) Read all

News 3 April 2019, at: 10:52

 Laura Codruța Kovesi was placed under judicial control, preventing her from leaving the country and talking to the press. Protests to support Kovesi were organized this weekend

( ) Read all

News 24 March 2019, at: 20:48

 When Benito Mussolini debuted the Fasci Italiani di Combattimento, the precursor to his fascist party, on Mar. 23, 1919, in Milan, he wasn’t inventing the idea of violent authoritarianism. But he put a name on a new and terrible breed of it. Under his leadership, squads of militants...

( ) Read all

News 24 March 2019, at: 08:36

France’s Emmanuel Macron declared the “time of European naïveté” towards China was over as Xi Jinping was hosted with pomp in Rome for a visit that has alarmed both Brussels and Washington.

( ) Read all

News 22 March 2019, at: 19:39

 Almost 70 percent of the world’s most important economies is under the control of populist governments or non-democratic regimes, according to an analysis by Bloomberg Economics.

( ) Read all

News 20 March 2019, at: 07:33

On this day five years ago the Constitutional Court of the Russian Federation adopted - over one night - the decision (opinion) that allowed for the annexation of a part of Ukrainian territory - the Crimean penninsula. Thus, the decision of 19 March 2014 contributed to the commission of an act of...

( ) Read all

News 19 March 2019, at: 06:41

 Remarks by High Representative/Vice-President Federica Mogherini at the press conference following the Foreign Affairs Council

( ) Read all

News 18 March 2019, at: 16:41

 BUDAPEST — The International Investment Bank, an obscure Russian financial institution with a small-time balance sheet, is an unlikely source of global intrigue. In more normal times, its plans to open a new headquarters in Budapest would pass unnoticed.

( ) Read all

News 18 March 2019, at: 15:36

 The attack in New Zealand was inspired in part by the Norwegian mass murderer Anders Behring Breivik, but the real threat is lone wolves lurking in the far corners of the Internet.

( ) Read all

News 15 March 2019, at: 12:55

 WASHINGTON, DC – Last week, Congressmen Adam Kinzinger (R-IL) and Bill Keating (D-MA) introduced H.R. 1616, the European Energy Security and Diversification Act, to help both the United States and European countries attain global energy security while also encouraging a...

( ) Read all

News 14 March 2019, at: 18:20

 Note: Unless otherwise noted, all references in this report exclude the secessionist region of Transnistria.

( ) Read all

News 13 March 2019, at: 23:09

 The Constitutional Court on Feb. 26, 2019. The court abolished on Feb. 26, criminal liability for illegal enrichment, deciding that it violates the presumption of innocence.

( ) Read all

News 11 March 2019, at: 20:04

 Latvia has finished construction of the 93-kilometer-long section of the fence with the barbed wire on the border with Russia. Kristina Petersone, the press secretary of Latvian State Border Guard said that as quoted by Diena.

( ) Read all

News 11 March 2019, at: 08:21

 The restoration of Statehood Day, is a national holiday in Lithuania, and is always celebrated on March 11 in Lithuania. This public holiday is also known as Restoration of Independence Day.

( ) Read all

News 11 March 2019, at: 06:57

 Russia will be one third Muslim in a decade and a half, and the demographic trend is too far along to stop.

( ) Read all

News 8 March 2019, at: 08:05

 Russia's parliament has passed two bills outlawing "disrespect" of authorities and the spreading of what the government deems to be "fake news".

( ) Read all

News 5 March 2019, at: 08:52

 The arrest of an American businessman in Russia echoes the Khodorkovsky and Browder episodes from the early 2000s.

( ) Read all

News 2 March 2019, at: 17:57

 Ukrainian President Petro Poroshenko has proposed the introduction of a new anti-corruption law after the the country’s Constitutional Court annulled the president’s previous anti-graft bill, a move that raised both domestic and international concerns that the country is...

( ) Read all

News 2 March 2019, at: 07:30

 The Kremlin remains determined to establish itself as a hegemonic great power, and to follow the domestic as well as international priorities that have underpinned that objective since Vladimir Putin’s return to the presidency in 2012. But Russia’s wider public has become less...

( ) Read all

News 28 February 2019, at: 15:20

 The United States congratulates the people of Moldova, the Central Electoral Commission, and the winners in the February 24 parliamentary elections. We welcome the assessment by the Organization for Security and Cooperation in Europe’s (OSCE) Office for Democratic Institutions and...

( ) Read all
Current tier / breakpoint: xs sm md lg xl (= visible only on this breakpoint)

.hidden-xs-down .hidden-sm-down .hidden-md-down .hidden-lg-down

.hidden-xs-up .hidden-sm-up .hidden-md-up .hidden-lg-up .hidden-xl

.hidden-xs (only) .hidden-sm (only) .hidden-md (only) .hidden-lg (only) .hidden-xl (only)